How Retailers Could Dominate the Mobile Payments Market

The concept of the mobile wallet hasn’t gained a foothold with consumers, which could open up an opportunity for merchant apps to grab the mobile payments market.

A lot of attention has been given recently to Merchant Customer Exchange (MCX), the mobile wallet being built by a collection of retailers. MCX could give retailers the opportunity to play a bigger part in the payments space if it can gain wide adoption among consumers.

But there could be one big problem: some research has shown that a large segment of U.S. consumers don’t trust the idea of a mobile wallet. A September survey of U.S. consumers by Consult Hyperion, an IT consultancy, found that 64% of U.S. consumers said they wouldn’t use a mobile wallet, no matter who the provider was. Even among younger consumers in their twenties and thirties, the survey found that 50% wouldn’t use a mobile wallet.

This may be bad news for MCX (and all the other wallet solutions), but it could mean an opportunity for retailers to step into the mobile payments market with their own individual mobile payments apps, says David Birch, a founding director and global ambassador for Consult Hyperion.

“Merchant apps are going to dominate anyway, I believe… it’s hard to see how a third party could come up with a better customer experience than a retailer,” Birch comments.

While wallet apps have yet to gain widespread awareness among U.S. consumers, retailers’ apps with mobile payments capabilities, like the Starbucks app, have had more success. “Right now people are confused about the concept of the mobile wallet. But people like their merchants apps,” Birch notes.

That doesn’t mean that the mobile wallets players are wasting their time in the payments space. Instead of offering customer-facing apps, the wallet providers could provide the back-end infrastructure for the retailers to offer their mobile apps’ payments capabilities.

“You won’t see a MCX app on your phone… but MCX could provide API’s to the merchants to integrate payments into their apps,” Birch predicts. “You’ll have your Walmart app, your Untied [Airlines] app, your Uber app, and underneath they will be using the wallet provider’s infrastructure.”

By leveraging the wallet providers in this fashion, retailers could offer their own payments apps without requiring consumers to enter their payments credentials with each new app they download, and could leverage the wallet provider’s infrastructure for security and authentication, Birch adds.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

This makes sense for large scale retailers like a best buy or a food chain who will have the infrastructure to host and launch their own applications but not sure how much this concept will be embraced in a multi-tenancy/shared services approach which is affordable to a smaller retailer. But this can definitely result in taking loyalty as a concept and that of location based marketing/coupons to a whole different plane!

It sounds like merchant mobile apps will lead to the same proliferation as merchant branded credit cards. Many of us still carry retail-branded cards to get discounts and rewards in stores. Following this model, multiple payment apps would get unwieldy. I agree merchants apps should use one back-end payment infrastructure.

This makes a lot of sense to me, as merchants could also bundle offers/promotions with their wallets. On the other hand, if merchant wallets eventually take off, will there be a point where consumers don't want multiple wallets, and then look to an MCX or bank-driven wallet to be the one point of payment -- similar to using a bank-issued card rather than multiple retailer-branded cards.

I guess the question is whether or not the value for the consumer is in having a third-party financial app, or having multiple first-party apps that offer additional content and relevant perks beyond just payment. If Starbucks gives me a discount, for example, or a loyalty program, if I pay through their app, why should I use a third-party payment app?